General Responsibilities of a Portfolio Manager

A Portfolio Manager is a SEBI‑registered professional or entity that constructs, manages and monitors investment portfolios on behalf of clients, adhering to the investment policy statement (IPS) agreed with each client.

The PM’s scope covers asset selection, allocation, execution of trades, and continuous rebalancing. Unlike a distributor, the PM does not sell the PMS product; instead, they are the investment decision‑maker responsible for generating returns within the risk parameters set by the client.

For the NISM exam, you will often be asked to differentiate the PM’s duties from those of distributors, especially in questions that test knowledge of SEBI (Portfolio Managers) Regulations, 2020.

• Decision‑making authority – The PM decides which securities to buy or sell.
• Regulatory registration – Must be registered as a Portfolio Manager with SEBI.

The PM must first understand the client’s financial goals, risk tolerance, investment horizon and liquidity needs. This information is documented in the client’s IPS, which becomes the benchmark for all subsequent actions.

Based on the IPS, the PM performs asset allocation, security selection, and timing decisions. They must ensure that each trade aligns with the client’s risk profile and that the overall portfolio stays within prescribed limits such as sector caps or concentration thresholds.

Exam‑relevant points include: the PM’s duty to act in the best interest of the client (fiduciary duty), to maintain a documented investment policy, and to obtain client consent before deviating from the IPS.

• Asset allocation – strategic distribution across asset classes.
• Security selection – choosing individual equities, debt, or alternatives.

Under SEBI (Portfolio Managers) Regulations, 2020, a PM must be registered with SEBI and maintain a minimum net worth of INR 5 crore. They must also submit periodic compliance reports, including the monthly portfolio statement and the annual audit report.

Key compliance tasks include KYC/AML verification for each client, maintaining records of all transactions for at least five years, and filing the Form PFM‑1 and Form PFM‑2 as prescribed.

For the exam, remember the specific record‑keeping period (5 years) and the mandatory disclosure of the PM’s registration number on all client communications.

• Annual audit by a certified auditor.
• Quarterly compliance certificates to SEBI.

Continuous performance measurement is a core PM duty. The PM calculates portfolio returns, compares them with appropriate benchmarks, and reports the results to the client at least quarterly.

Return calculations must incorporate cash inflows/outflows, dividends, and any fees charged. The most exam‑friendly metric is the Compound Annual Growth Rate (CAGR), which reflects the annualised return over the investment period.

Typical exam questions ask you to identify the correct formula for portfolio return or to spot an error in a presented performance report.

• Benchmark selection – must be relevant to the portfolio’s asset mix.
• Variance analysis – explain deviations from the benchmark.

Risk management is woven into every PM activity. The PM must set risk limits (e.g., sector concentration, VaR thresholds) and monitor them daily using risk‑management software.

Asset allocation is performed at two levels: strategic (long‑term) and tactical (short‑term adjustments). Strategic allocation reflects the client’s risk profile, while tactical moves respond to market opportunities without breaching the IPS.

Exam questions may present a scenario where a PM exceeds a sector cap; you need to identify the breach and the corrective action required under SEBI rules.

• Diversification – spreading investments to reduce unsystematic risk.
• Stop‑loss limits – predefined price levels to limit losses.

Transparent communication builds trust and satisfies SEBI’s disclosure norms. The PM must provide periodic statements showing holdings, valuation, returns, fees charged and any breaches of the IPS.

All fee structures (management fee, performance fee, custodian charges) must be disclosed upfront in a fee schedule. Any change in fees requires prior client approval.

Typical exam items ask you to identify a missing disclosure element in a sample client report, such as the absence of a performance‑fee calculation.

• Quarterly performance summary.
• Annual compliance certificate.

Portfolio Managers owe a fiduciary duty to act solely in the best interest of their clients. This includes avoiding conflicts of interest, such as recommending securities that generate higher commissions for the PM.

SEBI mandates a Code of Conduct for PMs, covering fair dealing, confidentiality, and proper handling of client information. Breaches can lead to penalties or suspension of registration.

In the exam, you may be given a scenario where a PM receives a referral fee and must decide whether to disclose it. The correct answer is to disclose and obtain client consent.

• Conflict‑of‑interest policy – mandatory for all registered PMs.
• Client confidentiality – no sharing of personal data without consent.

Operational duties include timely order execution, settlement monitoring, and cash management. The PM must ensure that sufficient cash is available for redemptions and that any cash balances are invested per the IPS.

Compliance with the investment policy statement is verified through daily reconciliations and periodic internal audits. Any deviation must be documented and justified to the client and SEBI.

Exam questions often test your knowledge of the order‑execution chain – from trade initiation to settlement – and the PM’s responsibility for each step.

• Trade verification – double‑check order details before execution.
• Settlement oversight – ensure T+2 settlement for equities.